Is Another Demonetisation Coming Your Way?

Ever since late December last year, rumours were abound that the Rs 2,000 note could be demonetised. In fact, there was great anticipation and even fear amongst some that Prime Minister Modi would announce the demonetisation of the same in his New Year’s speech. But who can predict what he has in mind? No one.

However now, it seems that this will indeed happen. Talks of this second round of demonetisation have even reached the Parliament. The Opposition in Rajya Sabha asked Finance Minister Arun Jaitley to clarify whether the government has decided to scrap the Rs 2,000 note. However, Arun Jaitley did not respond.

A shortage of Rs 2,000 notes is being experienced which is being attributed to hoarding. But it’s also a fact that the RBI has reduced the supply of this denomination.

After the demonetisation of Rs 1,000 and Rs 500 notes, the Rs 2,000 denomination notes were printed in a hurry as they were needed to fill the liquidity void in the system. Now that things are back to normal, there are great chances that the Rs 2,000 notes will be demonetised.This could be a strategy to curb the supply of high-value notes and print more low-value notes.

Some reports also say that the RBI has completely stopped the printing of Rs 2,000 notes. But what has made the rumours of another round of demonetisation more plausible is the step taken by RBI to start printing Rs 200 notes.

With more Rs 200 and Rs 500 notes in circulation, the common people will not be impacted much by a ban on the Rs 2,000 note. But it would surely hurt those who’ve hoarded the Rs 2,000 notes.

The sole purpose of the Rs 2,000 notes was to relieve some of the cash crunch that was caused by the ouster of the Rs 1,000 and Rs 500 notes. But now that need is over.

If the government is indeed planning to increase the supply of the Rs 500 and Rs 200 notes and restrict supply of Rs 2,000 note, it is very possible that these steps would lead to demonetisation of Rs 2,000 note. Although this demonetisation might not be like the one witnessed in November. This one could simply involve slowly taking the Rs 2,000 note out of circulation and flushing the system with Rs 500 and Rs 200 denominations.

Vinayak Jain